Industrial policy is back on the agenda!

The failures of a free market approach to development has led to an increased demand for advice and support in crafting industrial policies that promote a movement into more sophisticated manufacturing activities with greater value addition.

The shortage of adequately trained national analysts leads to an extensive dependency on international advisers and in the most alarming cases to unrealistic strategic objectives and the deployment of inappropriate policy tools.

UNIDO and GDC believe that every country should be equipped with simple analytical tools which can help them to answer imperative questions such as:

  • How is our industrial sector performing relative to competitors?
  • Where is there potential for expansion, upgrading, employment generation or enhanced energy efficiency in our industrial sector?
  • How diversified and embedded is our industry?

Answers to questions such as these are vital for successful strategy setting and industrial policy formulation.

Towards evidence-based industrial policymaking

Global experience indicates that for the industrial policy process to be effective it has to be evidence-based, participatory and focused on realistic objectives. International best practice examples suggest that a successful industrial policy cycle must start from a thorough industrial diagnosis that maps the local and global industrial landscape and provides an in-depth understanding of country characteristics, constraints and opportunities as well as global trends. However, a key challenge for many developing country governments is a shortage of adequately trained national analysts and, thus, the lack of appropriate capacities to follow an industrial strategy formulation process that is sufficiently evidence-based.

In this context, UNIDO and GIZ have joined forces to develop an integrated methodological toolbox and a capacity-building package for industrial diagnosis. Their joint project “EQuIP – Enhancing the Quality of Industrial Policies” aims to support policymakers in developing countries to formulate and design evidence-based strategies for inclusive and sustainable industrial development.

EQuIP aims to strengthen the ability of lower income countries to manage their own future and to enable them to have a larger say in strategy-setting, policy formulation and their engagement with development partners.

Some notes

A few remarks are warranted on the current version of the EQuIP toolbox:

  • First, the diagnostic tools developed so far can be deployed in modular manner. However, obviously, the more tools are applied, the more findings can be generated, and the more information can be fed into the strategy formulation exercise.
  • Second, the tools are considered “living documents” (or “constant work in progress”) that will be continuously improved based on users’ feedback and comments.
  • Third, further tools could be developed in order to cover additional topics of importance for inclusive and sustainable industrial strategy-setting.
  • Fourth, the EQuIP Toolbox is based on the acknowledgement that not all industrial development goals can be achieved at the same time – which points to the importance of prioritization and a sequential approach to industrial strategy implementation.
  • Fifth, while it was suggested to use the EQuIP toolbox for the diagnosis and strategy formulation segments of the policy cycle, it can actually also be very useful for increasing the transparency of strategy-setting processes as well as for monitoring and evaluation (M&E) exercises, not least because a premium has been given to quantitative measures.
  • Last but definitely not least, the EQuIP Toolbox should not be interpreted as being deterministic. Rather, the main objective of the EQuIP toolbox is to strengthen the capacity of policymakers and analysts to think independently and critically. That is, with its emphasis on capacity-building (which is not confined to technical capabilities only), it aims to bolster their ability not only to answer questions but also to ask the right questions, i.e. to identify those areas that are particularly relevant for promoting an inclusive and sustainable industrial development process in their country.

This collection of diagnostic tools has been tested and validated in various events, including an academic expert workshop in Bonn and three practitioners’ pilot training workshops in Namibia, Bahrain and Chile. During these events, many participants from developing countries expressed their interest in the type of capacity-building offered by the EQuIP project. Overall, the training exercises were well received and participants confirmed the usefulness of the diagnostic and analytical methodologies compiled in the EQuIP toolbox.

At the same time, the EQuIP team is aware that the current collection of diagnostic tools cannot be considered exhaustive since some areas are still underdeveloped. A number of possible extensions of the current toolbox scope have already been identified. Additional tools could cover, amongst other things, topics such as regional, gender and inter-generational inclusiveness; establishment and growth of “green industries”; minimization of the environmental impact of industry; inter-sectoral and intra-industry linkages; untapped domestic demand potential; or skills and finance as drivers of industrial development. Moreover, the industrial policy and institutional setup tools address issues such as instruments for policy design and implementation, monitoring and evaluation (M&E), or appropriate institutional setups in support of inclusive and sustainable industrial development.

Limitations

The authors of this toolbox are aware of the limitations of the EQuIP toolbox. The presented tools do not encompass all relevant aspects for industrial diagnosis and analysis, they rather present a selection of the issues, that seem most relevant to the authors. The toolbox is to be seen as work in progress, additions and alterations in the next years will most likely be necessary.

In general, it is rather unlikely that this approach, similar to all other known approaches to industrial policy, will yield the perfect result. A M&E loop is built into the toolbox in order to correct initial decisions which lead towards unintended results. The approaches in the toolbox are based on data which should be available in many of the developing countries and it neglects more sophisticated statistics that would only be found in OECD countries.